A major Canadian financial institution faced an illegal property flipping scheme and required a substantial investigation to uncover all the associated impacts.
Accuracy was hired by a major Canadian financial institution to investigate an illegal property flipping scheme. Illegal property flipping is a type of mortgage fraud involving the fraudulent selling of the same property between colluding individuals in order to drive up the price of a property artificially.
The scheme can be summarised in three steps: (i) criminals purchase a property from a legitimate seller using funds from a private lender; (ii) the criminals quickly resell the property to a second buyer, financed through a mortgage from a bank, at an artificially inflated price, thus generating a financial gain after payment to the private lender; (iii) the second buyer defaults on the mortgage payments, resulting in the property being seized by the bank and sold at its real market value. This leads to a financial loss for the bank and a gain for the buyer, who keeps the remainder of the mortgage.
An individual alerted our client that he had been the victim of identity theft, with the Canadian authorities claiming $1.0m in unpaid taxes from undeclared property gains. Our client began to investigate and soon realised that a number of property purchases were recorded under the individual’s name—a signal for illegal property flipping.
During their investigation, they noted that the acting notary in charge of the suspicious transaction completed fourteen other property sales that were granted a mortgage by our client. Our client therefore decided to seek assistance from Accuracy to investigate these transactions and end the apparent fraud scheme.
How we helped
We applied a systematic approach to analyse the suspicious transactions, collect relevant data and highlight the mechanisms used by the criminals. Our approach was as follows:
- Review the sale and mortgage deeds
- Analyse the mortgage loan documentation
- Track and analyse the transactions that previously occurred in relation to each property
- Review the foreclosure documentation
- Scrutinise the protagonists’ bank accounts
- Cross-check the cash flows between the protagonists.
Our work showed how the criminals managed to resell the properties at on average double the market price after only three months, resulting in $2.1m of profit for them and $1.2m in losses for our client. We also highlighted how elaborately the criminals had concealed their actions by forging numerous documents to legitimise their transactions.
Confidentiality and discretion were key factors for the success of the investigation. The suspected notary was actually the Chairman of the Board of one of our client’s branches. He had used a trust bank account to proceed with the transactions on the fifteen properties. To avoid alerting him to the investigation, we succeeded in cross-checking most of the flows based only on the information accessible from our client’s headquarters.
Confronted with our report and conclusions, the notary was forced to resign from his management position. Our client did not pursue criminal charges, but the Professional Canadian Notary Association has launched an inquiry.
Our report also highlighted several flaws in our client’s controlling policies for mortgage lending. The client subsequently implemented improved procedures and asked Accuracy to train more than 300 internal auditors on fraud prevention.